Energy Bills to Remain High

Households and businesses will have to wait for energy bills to fall significantly because “there is no shortcut” to reducing prices. Energy Secretary Michael Shanks admitted that the promise to cut bills by switching the UK to clean energy had not been kept.

Current Energy Prices

The UK has the second highest household and industrial electricity prices among developed countries, despite renewable energy supplying more than 50% of Britain’s electricity last year. Energy regulator Ofgem will announce its latest price cap, which is expected to fall by 1% for a typical household, leaving energy bills still 35% above pre-Ukraine war levels.

Building a Clean Energy System

“The truth is we need to build this infrastructure to remove fossil fuel volatility from people’s bills,” Mr Shanks said. “We obviously hope this happens as quickly as possible, but there is no shortcut to it and there is no easy solution to building a clean energy system that reduces costs.” The costs of subsidizing offshore wind and building and managing the grid have risen sharply due to supply chain inflation and the rising costs of financing large capital projects.

Impact of Renewable Energy on Bills

Renewable energy subsidies and grid costs account for more than a third of bills and are expected to rise. The government had to increase the maximum price it will pay for offshore wind energy by more than 10% in the recent renewable energy auction and extend price guarantees from 15 to 20 years. The auction ends early next year, but it is possible that the price of new wind power will be set higher than the current average wholesale cost of electricity, which is driven primarily by gas.

Role of Gas in the Energy Network

Gas remains a central part of the UK electricity network, with around 50 active gas-fired power stations forming an increasingly renewable network, and is also crucial to pricing. Because of the way the energy market functions, wholesale gas sets the price for all sources of electricity. The UK needs to maintain and pay for a full gas network, even though renewables make up the majority of electricity generation and are only used a fraction of the time.

Short-Term Solutions

The CEO of Uniper, Michael Lewis, agrees that moving away from gas will ultimately reduce costs, but there are measures the government can take in the short term. "We have quite a lot of policy costs on our energy bills in the UK, for example renewable energy incentives, a warm home rebate and other taxes. If we take these out of energy bills and include them in general taxation it will have a big dampening effect on energy prices, but fundamentally it’s about gas." The Chancellor is considering a range of options to trim the bills in the short term, including shifting some policy costs and environmental charges from the bills into general taxation, as well as a cut in VAT.

Political Consensus on Net-Zero Emissions

Stubbornly high energy bills have already broken the major parties’ political consensus on net-zero emissions. The Conservatives have reversed policies introduced by Theresa May, with Shadow Energy Minister Claire Coutinho explaining that net zero is now forcing people to make decisions that will make them poorer. Reform UK has made opposition to net zero a key issue, with deputy chairman Richard Tice stating that renewable energy has been a disaster and has not made energy cheaper or lowered bills.

Response from the Energy Secretary

Mr Shanks says his opponents are wrong and insists renewables remain the only long-term option: "The cost of subsidies is rising due to global construction costs, but they are still significantly cheaper than building on gas." He also argues that the country is still paying the price of fossil fuel volatility, and that over the last 50 years, more than half of the economic shocks the country has faced have been the direct result of fossil fuel crises around the world.